Burlington Stores Rises 14% in 3 Months: More Room to Run?

Burlington Stores, Inc. BURL is gaining momentum on the back of strong comparable sales (comps) performance, store expansion plans among other long-term strategies. Notably, the company remains focused on vendor count growth, technological advancements, marketing enhancements, efficient inventory management and cost containment.

These efforts have been aiding the company’s performance amid high freight and SG&A expenses. During the first quarter of fiscal 2019, the top line beat the Zacks Consensus Estimate and grew year over year. The bottom line matched the consensus mark.  Management remains confident of posting higher sales and earnings in fiscal 2019. (Read: Burlington Stores Q1 Earnings Meet, Sales Top Estimates)

In the past three months, shares of this Zacks Rank #3 (Hold) stock has increased approximately 14%, outperforming the industry’s growth of around 9%.

Factors Driving Burlington Stores’ Performance

Burlington has made multiple changes to its business model to adapt to the ongoing changes in the industry. The company, which started business as a coat-focused off-price retailer, is now focusing on “open to buy” off-price model. The current model is helping customers to get nationally branded, fashionable, high quality and right-priced products. Further, over the years, the company has increased vendor counts, made technological advancements, initiated better marketing approach and enriched localized assortments.

Markedly, the company has been doing quite well on the revenue front. Its revenues have not only outpaced the estimates in 10 out of the 13 trailing quarters but have also shown constant improvement over the past few quarters. In the first quarter of fiscal 2019, the top line improved 7.3%. For fiscal 2019, management expects total sales to increase 8.5-9.2% with comparable store sales growth anticipated to be 1.3-2.1%. The company expects second-quarter sales to increase 8-9%.

Also, the company has been focusing on store expansion. Its store count has increased from 13 in 1980 to 675 in fiscal 2018. Further, the company plans to open 50 net new stores in fiscal 2019. This comprises 75 gross new stores and 25 store relocations and closures. It plans to remodel 28 stores in fiscal 2019. It also believes that there is room to increase the store count to 1,000.

Will Cost Woes be Offset?

The company is grappling with strained margins for a while now. After shrinking 20 basis points during the final quarter of fiscal 2018, gross margin again shriveled by an equivalent basis points during the first quarter of fiscal 2019. Further, adjusted SG&A expenses, as a percentage of sales, rose 20 bps to 26.3% due to deleverage in occupancy and store payroll expenses. This was partly offset by lower marketing and utilities expense rates. Adjusted operating income fell 1.9% to $117.4 million, while adjusted operating margin contracted about 65 bps owing to higher freight expenses and depreciation charges.

Management expects freight costs to increase roughly 20 bps in fiscal 2019, which along with high SG&A expenses remains a matter of concern.

Nevertheless, we expect all aforementioned growth drivers to offset these hurdles and help Burlington Stores to sustain its solid momentum.

Key Picks

Dollar General Corporation DG has a long-term earnings growth rate of 10.9% and carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Ross Stores, Inc. ROST has a long-term earnings growth rate of 10.4% and a Zacks Rank #2.

The TJX Companies, Inc. TJX has a long-term earnings growth rate of 10.9% and a Zacks Rank #2.

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